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Foreign portfolio investors (FPIs) have pulled out ₹38,068 crore from Indian equities and debt in February. This is the highest monthly outflow of foreign funds from the domestic market after their record sell-off in March 2020.
As per depositories data, FPIs have pulled out ₹35,592 crore from equities and ₹3,073 crore from the debt segment last month. Prior to this, the highest monthly outflows from Indian equities and debt were in March 2020 when the foreign investors pulled out a record sum of ₹ 61,973 crore from equities and ₹60,376 crore from debt, spooked by the coronavirus outbreak and its impact on the economy due to lockdown and restrictions.
“FPIs have been on a selling spree in India since October 2021. The near consensus among foreign brokerages has been that valuations in India are high and therefore unsustainable. The view that valuations are high, particularly in comparison with emerging market peers, is valid,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Key factors
The imminent rate hike by the US Federal Reserve, concerns on US withdrawal of economic stimulus and high valuation of domestic stocks are some of the factors that have been forcing FPIs to sell-off in the Indian market over the past few months. The current uncertainties around the Russia-Ukraine war and other geopolitical issues have unnerved the foreign investors further.
FPIs have been net sellers of Indian equities since October 2021 pulling out ₹1,07,416 crore till February 2022. They also pulled out ₹10,253 crore from Indian debts during this period.
“India has been the highest receiver of FPI flows among emerging markets in the last 24 months since the pandemic. Post the pandemic recovery, valuations of Indian stocks became stretched for overseas investors and now, they are withdrawing from India as well as from other markets,” said Kranthi Bathini, equity strategist at WealthMills Securities.
‘Hot money’
He, however, added that most of current FPI outflows are ‘hot money’, which are essentially foreign exchange-traded funds (ETFs) while Long-only FPI funds, India-focussed funds and sovereign wealth funds stay vested in the country betting on the long-term growth prospects of the country.
Geojit’s Vijayakumar said, in 2022, return from equity is likely to be lower since equity markets will be facing a strong headwind from Fed’s tightening. “FPIs are unlikely to turn buyers unless the market corrects sharply and valuations turn attractive.”
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